Macro: Sandcastle economics
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Signs of green metals comeback
Peter Garnry
Chief Investment Strategist
Key points:
- Copper prices surged 14.3% since late October 2023 and 5.3% this week due to production cuts by major miners, shutdown of Cobre Panama mine (world's largest), and expectations of global economic growth.
- Lithium carbonate, a key battery compound, prices are rising on tightening supply and showing signs of recovery after a downturn in late 2022. Rising prices reflect a healthier supply-demand balance and lithium demand is expected continue rising as EV market growth is still high in the coming years.
Copper prices rally 5.3% this week
After months of steady production cuts from miners such as Anglo American, Rio Tinto, Vale, and Teck in addition to the shutdown of Cobre Panama, the world’s largest copper mine in Panama, the market has gone from production surplus to a deficit. Expectations are also building in the market that China’s economy will continue to be supported by government stimulus and that the global economy is not slowing down. As a result high grade copper futures are 14.3% higher since late October 2023 and 5.3% higher this week alone.
Key risk in the short term is falling iron ore prices sending a mixed signal for industrial metals. Another risk to consider before investing in copper miners is increasing government intervention such as what happened to First Quantum Minerals that had to shut down its Cobre Panama copper mine.
For those that want exposure to copper there are several options ranging from copper futures (E-mini copper contract value is $51,275) or copper CFD (contract value is around minimum $412). There are also copper miners (note no pure copper miner exist in the world; they always mine something else such as gold and silver):
- Antofagasta
- Ivanhoe Mines
- Southern Copper
- Freeport-McMoRan
- Zijin Mining Group
Or ETFs covering either underlying copper futures or copper miners such as:
- WisdomTree Energy Transition Metals
- WisdomTree Copper
- iShares Copper Miners UCITS ETF
Lithium carbonate is finally turning higher?
Copper is what we call a green metal because it is used in the green transition. Another green metal is lithium which primary use is for lithium-ion batteries used in electric vehicles (EVs). This market has been in a bear market since late 2022 when Elon Musk said lithium prices were unsustainable and partnered up with China’s CATL, the largest battery maker in the world, to lower refinery prices on lithium carbonate (so raw lithium is extracted and then refined to lithium carbonate which is then used to make lithium-ion batteries).
Since the beginning of the year Chinese based lithium carbonate prices have turned higher reflecting a healthier supply and demand situation. With EVs expected to continue growing +25% annualised over the coming decade the market for lithium will continue to expand and it is a different way to get exposure to the growing EV trend without betting on who wins the battle in the end market between Tesla, BYD and Volkswagen.
Lithium and lithium carbonate don’t have active futures and thus is a market which investors only can get exposure to through lithium miners and ETFs tracking lithium miners. Below are a selection of lithium instruments:
- Albemarle
- Pilbara minerals
- SQM
- Arcadium Lithium
- iShares Lithium & Battery Producers UCITS ETF
- Global X Lithium & Battery Tech UCITS ETF
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